Many employees and members (“consumers”) of health maintenance organizations, employer groups and government entities have their purchases of personal prescription medications subsidized by payments to pharmacies through prescription benefit plans (“plans”) offered by those health maintenance organizations, employer groups and government entities. Under such plans, a consumer receives a prescription for a medication from his or her physician and submits it to a pharmacy to be filled. The pharmacy checks to see that the consumer is a member of a plan with which the pharmacy has a contract and that the medication and dosage prescribed are within the approved scope of the plan contract. Upon verification of these requirements, the pharmacy dispenses the medication to the consumer. The consumer pays the pharmacy a “copay” amount, less than the normal cost of the medication. The pharmacy receives the balance of the payment for the medication and its dispensing services from the prescription benefit plan, which is managed by a “prescription benefit manager” (“PBM”) with whom the health maintenance organization, employer group or government entity (“payer”) has contracted to manage the plan. The PBM invoices the payer (i.e., the PBM's customer) for the consumer's transaction, along with a charge for its contracted fee, and from the funds paid by the payer the PBM pays the pharmacy's balance due.
Conventionally brand name prescriptions are priced by starting with a nationally published “average wholesale price” (AWP) and discounting this figure. A dispensing fee is then added to this number. On the other hand, in the prior art systems generic drug claims usually employ an additional variant for pricing. This is a concept known as “maximum allowable cost” (MAC) pricing. MAC is the concept of paying a set price for a product on a per unit basis. Since multiple manufacturers may produce the same generic drug and dosage, the MAC price is applied regardless of the manufacturer or that particular manufacturer's AWP. It is common that prescriptions are paid at the lower of a) AWP minus a discount plus a dispensing fee or b) MAC plus a dispensing fee.
Because the cost of medications is so high and is such a large component of medical care costs generally, there is an on-going effort on the part of PBMs and payers to seek ways in which to control medication costs. Pharmaceutical medications are commonly available to consumers (patients) either in “brand name” (proprietary) or generic form. In some cases, especially for new or patented medications, only the brand name medication is available, usually only from a single source—the developer of the medication. For many others, however, there is no proprietary limitation on manufacture of the medication, and multiple sources of the medication—in generic or alternative brand name form—are available. Further, it is common that for a given class of pharmaceuticals, there are several different medications with substantially equivalent medical and physiological effects. Some of these medications may be proprietary brand name products while others may be generic and yet others may have been available in both generic and brand name forms. Retail prices charged by pharmacies can vary widely, especially where a particular medication is available in both brand name and generic form. Reimbursement rates paid to pharmacies vary depending on the product based on traditional reimbursement methodologies.
Physicians and other health care providers who write prescriptions therefore often have choices among the different medications they can prescribed for a patient. A physician can, for instance, prescribe a brand name medication or a generic form of that medication, or he/she can choose between two or more different but equivalent medication compositions. If the physician prescribes a brand name medication, he/she can also designate whether a dispensing pharmacy must dispense only that specific medication or can substitute an equivalent generic medication. There are of course significant differences in retail cost among the different medication forms, with generic forms normally being substantially lower in cost than brand name medications. However, either within each group (brand name or generic) there can be substantial cost differences, depending usually on the wholesale prices set by the various manufacturers. Thus for a single therapeutic category a physician, pharmacy and patient may be faced with numerous forms of the same or equivalent medications, all with different pricing.
PBMs are effectively in the middle of the prescription/pricing system, acting to obtain the most economical pharmaceutical prices for their clients, the payers, while at the same time seeking to insure that the pharmacies with which they contract for prescription fulfillment remain stable, economically viable and efficient businesses. Therefore it is valuable to all concerned—pharmacies, PBMs, payers and patients—for there to be a convenient, fair and effective system for managing medication costs under which patients can receive the medications they need at costs which are optimum for all. Such a system should provide a mechanism by which pharmacies and physicians are encouraged to select appropriate and effective medications but dissuaded from selecting higher priced medications where more economical versions are available as alternatives, but where physicians and patients can also select such higher priced medications if they so choose and are prepared to pay that higher price. It is a object of this invention to provide such a system.